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The Earned Income Tax Credit (EITC) is a significant source of government assistance to low income families. Total outlay reached over $50 billion in 2008, with more than 97 percent of aid received by families with children (Internal Revenue Service 2011). Despite its size and pro-child goals, relatively little is known about how the EITC affects children directly. Until recently, studies focused only on indirect measures of child well-being such as poverty, parental labor supply, marriage, fertility, and consumption. This study directly links EITC receipt throughout all ages of childhood to both contemporaneous achievement and long-run educational attainment. I take advantage of both Federal tax code changes and state EITC adoptions, which result in large variation in EITC generosity across state, time, and family size. Using the 1979 National Longitudinal Survey of Youth, I find that EITC expansions improve both contemporaneous and long-run educational outcomes of children. An increase in the maximum EITC of $1,000 (2008 dollars) in a given year significantly increases math achievement by about 0.072 nationally normed standard deviations. This change in EITC generosity during childhood also increases the probability of graduating high school or receiving a GED at age 19 by about 2.1 percentage points and increases the probability of completing one or more years of college by age 19 by about 1.4 percentage points. Estimated effects are larger for boys and minority children, and I find evidence that an expansion in the EITC is more effective at improving educational outcomes for children who are younger during the expansion. An increase in the maximum EITC of $1,000 also results in other changes in the household, including an increase in net family income inclusive of EITC and welfare payments of about $888 and an increase in maternal labor force participation.

Bibliography Citation

Maxfield, Michelle. "The Effects of the Earned Income Tax Credit on Child Achievement and Long-Term Educational Attainment." Working Paper, Michigan State University, November 14, 2013.